eMusic revamps to stay in tune

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Insider eMusic.com's new West 13th Street offices, a stage will soon be built that will allow the company—a sort of indies-oriented iTunes—to hold invitation-only concerts by some of its members' favorite acts. And this week, members will get a taste of the big changes coming to the service later in the year. These will include a cloud-based “locker” that will allow eMusic subscribers to stream their personal music collections on mobile devices.

What's more, the company is expected to announce a licensing deal in the coming weeks with EMI, completing a round of deals that brings all four major labels into the eMusic fold.

All this is happening just in time.

Thirteen-year-old eMusic, a pioneer in the digital business that offers subscribers a discount on download prices, now stands at a crossroads. Players like Rdio, Rhapsody and MOG are attracting a growing following with all-you-can-eat, streaming music services, which allow paying subscribers to access songs without actually owning them.

While eMusic also lacks the cutting-edge social media features of its newer rivals, the company's executives insist that it has something more valuable: 400,000 members who pay around $12 a month.

“We start with one huge advantage: a very large, very stable membership base,” said eMusic Chief Executive Adam Klein. “Many streaming-only services do not have a sustainable business model.”

A former EMI executive and Booz Allen Hamilton partner, Mr. Klein took charge of the company in August as part of an effort to ramp up growth by eMusic's parent, Dimensional Associates, an arm of Manhattan-based JDS Capital Management. His hiring followed reports early last year that Dimensional, which bought eMusic from Vivendi Universal in 2003, was thinking about selling it.

$12

COST of monthly subscription to eMusic

Playing the right crowd

Mr. Klein touted eMusic's members as knowledgeable music lovers in their 20s to 50s, who mostly purchase downloads of albums as opposed to individual songs, and who like that the site offers hundreds of original articles and reviews each month. Agreements with the major labels, he added, will make eMusic even more attractive to those subscribers while bringing in new ones.

“To its credit, eMusic has identified the key values of its constituency and is not trying to be all things to all people,” said Gartner Inc. analyst Mike McGuire.

But whether Mr. Klein can lead the company to growth is another story entirely. eMusic's subscriber rolls haven't budged above 400,000 for three years, its 2010 revenue of $65 million was down from $70 million in 2008, and the site has always operated in the red. The CEO argued that the lack of profits was a function of continued investment in the business.

Furthermore, adding major labels has been controversial. In the fall, three well-known indie labels, Beggars Group, Merge and Domino, broke away from the service in a dispute over terms, leading some observers to question eMusic's continued indie-centric appeal.

Mr. Klein said that he was in talks with those labels and still hoped to win them back.

Meanwhile, eMusic must contend with some powerful new rivals. Swedish streaming-music service Spotify could soon be among them. The company, which is preparing for a U.S. launch, boasts 1 million paying subscribers in Europe, and 9 million who use its free, advertising-supported service.

“There is room for different models in the market, but I would bet on the streaming subscription services,” said David Schulhof, co-founder of music publishing company Evergreen Copyrights.

Mr. Klein has not ruled out a streaming model for eMusic, if that's what members want. But he insisted that the site's community and small-label focused atmosphere would continue to be a draw.

He also believes that more tracks—12 million this month, up from 10 million in September—smartphone and tablet applications, and a more consumer-friendly site will spur growth.

Solid ties with the music companies will help in rolling out the new applications and products, Mr. Klein added. “We have long relationships with the labels and write them good checks,” he said.

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